As the owner of a small business, you will want to increase your tax savings to ensure you are putting as much money as possible back into your business. Unfortunately, many small-business owners make big mistakes on their tax forms that end up costing them significant amounts of money. Therefore, to help you with your next tax return, consider the following tips:
Deduct the Cost of Your Home Office
If you plan on running your business from home, you will be able to deduct the cost of this space from your final tax bill. You need to be careful with this, however – make sure you have detailed plans of the work space in case you get questioned about the arrangement by an auditor.
If you work from home, you have to be careful about what home expenses you actually deduct from your final tax bill. Often, many self-employed workers make the mistake of deducting too much from their final tax bill, which can be a big mistake that can end up costing a lot of money. When it comes to things like insurance, utilities and depreciation, you can only deduct a certain percentage based on the relative size of your home office to the entire property. This is why it's critical to have detailed plans of the work space as the IRS will often check to make sure you are deducting the correct amount.
Thankfully, calculating how much you can deduct is very straightforward. Once you know the exact dimensions of your home office, find out what the enclosed area is as a percentage of the total house. For example, if your office is 175 square feet and your home is 1400 square feet, you have a ratio of 0.125 (or 12.5%). This is the percent you can claim back for home expenses on your tax return.
Keep Tabs on Your Travel
As a self-employed tradesman or small-business owner, you will likely be traveling quite extensively. Whether it's attending a conference to market your business, traveling some distance to meet with a client, or flying across the country to meet with potential investors, you will be able to deduct these expenses.
When it comes to filling out your tax form, you will be able to deduct any transportation costs and any lodging costs. The benefits don't stop here, however. If you meet with a client and take them out for dinner or to a sports game, you will be able to deduct 50% of these costs. It's important to keep tabs on this – the IRS won't take your receipts on face value. Rather, you must have evidence that these were business trips and that some form of business was conducted, or discussed, at the event.
Make Sure You Claim on Your Business Vehicle
Regardless of whether you're a joiner who uses a van to transport tools, or a self-employed marketer who drives to meet with potential clients, you will be able to deduct the cost of your day-to-day transport. If you've never claimed on your vehicle usage before, you may be surprised at how much you can actually deduct from your tax bill. Therefore, it really does pay to understand the nuances of tax legislation and how it affects your business.
Some important things to note are:
Make sure your records are crystal clear. The IRS doesn't like to write off the cost of vehicles, so it's important that you have all evidence at hand when it comes to an audit.
Decide whether it's best to use the standard mileage rate or actual expense method of calculating your deductions. Which method is best for you depends on which type of vehicle you use – standard mileage rate generally gives better savings for small cars, whereas the actual expense method can generate huge savings for larger vehicles.
If you plan to factor depreciation into your calculations, you will have to use the actual expense method.
As a small-business owner, tax is one area where there is no room for error. It's important you remain vigilant with your company's books in order to avoid encountering penalties and additional taxes. To help you better understand this very detailed area of the law, consider speaking with a tax attorney, such as those at Wiesner & Frackowiak, LC, who is experienced in handling small-business taxes.
Share14 March 2016
Hello, my name is Neil Gamford. Welcome to my site about bankruptcy proceedings. After my divorce, I was left near penniless and without a place to stay. I was paying all of my income to alimony and my remaining debts. Although I had a solid payment plan in place, it was getting difficult to cover my financial obligations without a home. Luckily, I met with a bankruptcy attorney, who helped me find a way to discharge my debts and start over. I hope to share the information I learned throughout that process with you through this site. Please feel free to visit anytime.
